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Respondent determined a deficiency in petitioners' 1992
Federal income tax in the amount of $3,471, and an accuracy-
related penalty under section 6662(a) in the amount of $694.
Following concessions by respondent, the issues for decision are:
(1) Whether petitioners properly reported cost of goods sold on a
Schedule C relating to a business conducted by James H. Shelton;
(2) whether, with respect to James H. Shelton's business,
petitioners are entitled to various Schedule C business expense
deductions in excess of those allowed by respondent; and (3)
whether petitioners are liable for the accuracy-related penalty
under section 6662(a) for the year 1992.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits attached thereto are
incorporated herein by this reference. During the year in issue,
petitioners were husband and wife and filed a joint Federal
income tax return. At the time the petition was filed in this
matter, petitioners resided in Koshkonong, Missouri. References
to petitioner are to James H. Shelton.
In 1992, petitioner was employed as a professor of physics
at Sierra Academy (Sierra), a community college located in
Oakland, California. Also in 1992, petitioner was engaged in
what he described as an "education business." Petitioner's
education business was composed of two distinct components:
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